Electronic Mortgage Industry Directory
Seventh Edition - Covering 2005 Through 2007
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2007 and 2006:
The Years In Review
Is the Smoke Starting to Clear?

The mortgage industry is all about interest rates, isn't it? When interest rates are at historic (or near historic) lows refinancings spike, home sales increase and the mortgage industry rakes in the dough. Low unemployment is a key ingredient as well. If consumers are gainfully employed they'll buy homes. If the middle — and upper middle — class feels like taking a roll with the dice they may scrape together enough money to buy a second home, especially in vacation markets where they can rent out the property to help pay the mortgage.


Mortgage bankers also perform best when there is a wide spread between short- and long-term interest rates. The real estate finance business is all about math: borrow money (for example) at 3% and lend it out at 6%. What's left is your gross profit minus the operating costs (which might be extensive.) It sounds simple but it's not. Five years back, in 2002, mortgage bankers funded $241 billion in subprime loans. It was a time of 'cheap' financing. Non-depository lenders could borrow money dirt cheap from Wall Street (and large commercial banks) and lend it out to consumers at 5% to 6%. In the subprime space the profit margins were even greater: Borrow money on the cheap and lend it out at 7%, 8%, 9%, depending on the credit quality of the consumer.

Zip ahead a few years. Mortgage bankers — particularly subprime lenders — flourished. In 2005 A- to D firms originated a record $795 billion in loans, accounting for 24% of all residential loans funded in the nation. In 2006 subprime funders originated a respectable $665 billion, or 20% of the market. Keep in mind, though, that subprime funders, the likes of Countrywide Home Loans, First Franklin, New Century Financial (now defunct), and WMC Mortgage (to identify just a few) were also making other "non-traditional mortgages" (NTMs) including alt-A, payment option ARMs, interest-only loans and stated income mortgages. Some of these loans were "subprime" in nature (low FICO scores), others were not.

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